Explain in details the disadvantages for a country undergoing dollarization compared to a currency board or other exchange

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Explain in details the disadvantages for a country undergoing dollarization compared to a currency board or other exchange

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1 Explain in details the disadvantages for a country undergoing dollarization compared to a currency board or other exchange-rate targeting regimes Disadvantages of Dollarization There are some substantial drawbacks to adopting a foreign currency When a country gives up the option to print its own money, it loses its ability to directly influence its economy, including its right to administer monetary policy and any form of exchange rate regime The central bank loses its ability to collect 'seigniorage', the profit gained from issuing coinage (the minting of monies costs less than the actual value of the coinage) Instead, the U.S Federal Reserve collects the seigniorage, and the local government and gross domestic product (GDP) as a whole thus suffer a loss of income Discussion about the benefits and costs of financial liberalization Benefits of financial liberalization Main ideas – Ability to undertake investments in excess of the level of domestic savings – The technology transfers associated with foreign direct investment – The increased competition in the financial sector In my opinions affected allocating resources on a national and global scale Interest rate liberalization is the process of letting market forces decide the price of the most important resource, capital Accordingly, this scarce resource will be distributed to the most effective borrowers The free mobility of capital allows for a more efficient global distribution of savings and directs resources to the places where they are most effective Next, promote savings, investment and economic growth With other factors being the same, the more institutions and financial products there are, the more efficient the financial system will be and the greater contribution to economic development Next promote reforms in countries, improve the quality of growth Opening up, economic integration in general and financial liberalization in particular will force each country to reform and adapt to the world's advanced and common standards Finally, avoid the costs of capital control The use of capital controls, whether in effect or not, entails costs These costs will be avoided when liberalization is carried out Costs of financial liberalization My first idea is that financial liberalization can increase the likelihood of a financial market crisis (FM) This concern stems from two problems: opening up domestic FM that is not yet fully developed will be susceptible to external financial attacks; financial integration increases the risk of a chain crisis from the outside market into the domestic financial sector Next, financial liberalization could undermine the government's right to regulate FM When foreign corporations, organizations and enterprises can manipulate FM, they will influence the policies of the Government to make these policies more beneficial for them Furthermore, domestic FM will become more sensitive to the volatility of international FM and may result in political instability in the country Should State Bank of Vietnam let insolvent banks go into bankruptcy? The fact that the bad debts and losses of commercial banks in Vietnam are that there are and no banks in Vietnam go bankrupt will cause many questions This article will explain this phenomenon and always answer the question that people need to worry about when sending money or not Bankruptcy is a big deal and Bankruptcy is often not easy Vietnamese people in particular and Asia in general have a general mentality that is "limited" with some real life problems, such as divorce, will writing, dissolution, bankruptcy Therefore, Ngan State goods will be determined to protect their "children" Secondly, all banks are "protected" by the state Here is the protection of the State Bank of Viet Nam - Pumping money: This is the first and easiest step for weak banks to keep operating in the hope that they will improve the situation However, this is a costly measure and difficult to solve the root of the problem - Encourage or force merger and acquisition deals The most important thing is to find another bank that will accept the debt of the weak bank Thanks to the advantage that applying this method will save a huge amount of cash, this is also the way Vietnam is going - Consolidation: The State Bank also succeeded with the cult merger between banks in the state of serious liquidity loss SCB - Buying banks at VND: Over the past time, the State Bank (SBV) has continuously acquired commercial banks: VNCB, Ocean Bank, GP Bank The State Bank may choose to merge the above banks into other banks as regulated, but this also requires the merging bank to be a strong bank because no bank voluntarily accepted the merger And like the above case, the State Bank did not choose the option of mandating a bank to undertake the merger, due to the lack of a legal basis - The last measure to deal with weak banks is nationalization However, this measure is only used when the bank is "too big to fail", there are too many huge and intricate links in the financial system This is also the most expensive measure Third, it is for the depositors' interests to be further guaranteed Therefore, if the bank goes bankrupt, the damage to depositors will be great, leading to a decrease in the depositors' confidence in the banking system and for the State This is also a situation that forces the State Bank to protect it If bankrupt, the money to be paid to depositors is huge, unable to pay the depositors immediately due to the shortage and it takes many years to recover will lead to situation depositors withdrew money massively, leading to the risk of collapse of the national financial system When banks lose money, who suffers When a bank files for bankruptcy, the proceeds from the liquidation of assets will be paid to creditors in the order of priority: tax authorities, depositors, credit institutions in the market Interbank, bondholders of the bank, providers of products and services, and ultimately the bank's shareholders Theoretically, the bankers will suffer the most, but not really That is not including the scooping of assets of the bank owners These loans are credited to bad debt and in the event of a bank bankruptcy or bailout, they are written off ... the damage to depositors will be great, leading to a decrease in the depositors' confidence in the banking system and for the State This is also a situation that forces the State Bank to protect... deals The most important thing is to find another bank that will accept the debt of the weak bank Thanks to the advantage that applying this method will save a huge amount of cash, this is also... intricate links in the financial system This is also the most expensive measure Third, it is for the depositors' interests to be further guaranteed Therefore, if the bank goes bankrupt, the damage

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